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As an equity analyst you are concerned with what will happen to the required return to Universal Toddler' stock as market conditions change. Suppose r

As an equity analyst you are concerned with what will happen to the required return to Universal Toddler' stock as market conditions change. Suppose rRF = 8%, rM = 8%, and bUT = 1.5.

Under current conditions, what is rUT, the required rate of return on UT Stock? Round your answer to two decimal places.

___ %

Now suppose rRF increases to 9%. The slope of the SML remains constant. How would this affect rM and rUT?

I. rM will remain the same and rUT will increase by 1%. II. rM will increase by 1% and rUT will remain the same. III. Both rM and rUT will decrease by 1%. IV. Both rM and rUT will remain the same. V. Both rM and rUT will increase by 1%.

-Select-I/II/III

Now suppose rRF decreases to 7%. The slope of the SML remains constant. How would this affect rM and rUT?

I. rM will remain the same and rUT will decrease by 1%. II. Both rM and rUT will increase by 1%. III. Both rM and rUT will remain the same. IV. Both rM and rUT will decrease by 1%. V. rM will decrease by 1% and rUT will remain the same.

-Select-I/II/III

Now assume rRF remains at 8% but rM increases to 10%. The slope of the SML does not remain constant. How would these changes affect rUT?

I. rUT will decrease by 3%. II. rUT will remain the same. III. rUT will increase by 3%.

-Select-I/II/III

Now assume rRF remains at 8% but rM falls to 7%. The slope of the SML does not remain constant. How would these changes affect rUT?

I. rUT will remain the same. II. rUT will decrease by 1.5%. III. rUT will increase by 1.5%.

-Select-I/II/III

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